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Might condo association board be practicing financial fraud?

Posted on Fri, Oct 08, 2010 @ 06:20 AM
  
  
  
  
  
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condo board fraudEach year our condo association board of directors submit a budget for the following fiscal year. However, I have noticed that during that budget year, there are some categories such as pool management, miscellaneous, pool payroll, in which the board is not properly disclosing their spending expenditures, according to the budget as presented to the homeowners. For example, there was $30000 budgeted for pool management: however as to date there are 0 dollars spent under this category. It appears that the board is placing expenditures under other categories. This may account for the reason why the category of Miscellaneous has thousands of dollars so far spent. There is no consistency by our board in following the budget categories designated. This has been going on for several years. Does the board of directors; especially the board president, have fiduciary responsibilities to abide to their budget guidelines. Can a board be selective to place expenditures in any category of their choosing? There a certainly questionable spending expenditures. Some large and questionable expenditures go under Miscellaneous, which I feel is absurd. The board does not disclose in detail any of their spending expenditures in public at our open homeowners meeting. And when a homeowner does ask questions pertaining to expenditures, the board is very defensive and prefers to move on. Can board of directors be in violation according the Condominium Act for their state (in this case, Illinois)? Do the Robert Rules of Law apply here? Any feedback would be much appreciated. Thank you
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Comments

Interesting question. I am not sure if this is fraud per say, but I certainly know that it's a terrible accounting and bookkeeping practice. The Budget should be consistent with your accounting Chart of Accounts. If not it is very difficult for the Board to properly manage expenses throughout the year. It may be difficult for all expenses to go into the correct accounts throughout the year, but definitely prior to Budgeting a review of this should be done for accuracy.
Posted @ Friday, October 08, 2010 6:37 AM by Marc Rodriguez
At least in Massachusetts, you would have the right under the condominium act to review the books and record including the financials so you could determine exactly what is being spent under the miscellaneous line item. 
 
 
 
 
 
Stephen Marcus 
 
Marcus Errico 
 
781.843.5000
Posted @ Friday, October 08, 2010 6:53 AM by Stephen Marcus
Riobert's Rules define a meeting of the Board Of Directors, be it a condo,HOA or Business as a deliberative assembly. The interpretation of this descriptor as promulgated by the American Institute of Parliamentarians is thatall agenda items are open for deliberation and for a vote by the assembly (attendees) A simople majority prevails but also the rights of the mionority are respected and protected. This rue applies to omitting reading of previous minutes, adopting the agenda etc.  
 
I am not familiar with your state's condominium act but normally such acts guarantee ubnit owners right to inspect all records. If you have that priviledge insist you personally search the records.
Posted @ Friday, October 08, 2010 7:40 AM by Charles Adler
I would be quite confident both you bylaws and your state's condo act would give you the right to look at the financials.  
 
As far as your fiduciary question, board have been held to a high standard in regards fiduciary law in most every state in the country. Fiduciary law does not have to be directly in the condo act for this to be the case. Take a look at www.wvnorthface.info/nf/pg.php?&page_name=fiduciary to see that boards have been held to a very high level of responsibility. My research has suggested that that this is the case in virtually all states. 
 
I would review your states condo act and your bylaws and bring up specifics to the board that you feel they are not in compliance with.
Posted @ Friday, October 08, 2010 7:51 AM by Rick
I am not familiar with your state laws governing common interest associations but it sounds to me like poor accounting/bookkeeping. Are you self-managed ?? If you are professionally managed by a company then there is no excuse. 
 
The problem is that if your board is in denial you may have to change their mentality before they agree to have the books reviewed by an accountant or CPA.
Posted @ Friday, October 08, 2010 7:53 AM by Susana Murray
Also, in regards to  
Robert's Rules, my association legal documents do specify that Robert's Rules apply. Yours may also.  
 
Even if Robert's Rules apply owners should have a right to speak and get questions answered. After all it is not called an Owner's meeting for nothing. It is the one time owners have a forum. The board has multiple meeting, staff at their disposal, and owner's money to get out information through mailings, etc. as they see fit, (appropriate, fair and balanced, or otherwise) so owners should not be silenced at their own meeting.
Posted @ Friday, October 08, 2010 7:59 AM by Rick
My association legal documents also call for limited audits every two years or when there is cause. 
 
Yours may also.
Posted @ Friday, October 08, 2010 8:02 AM by Rick Bolduc
There is very serious misconception on this forum. Just because one homeowner or two have legitimate questions, concerns or personal issues with their board it does not make it a community issue. Any board can bypass Robert Rules whether it is in their documents or not.
Posted @ Friday, October 08, 2010 8:56 AM by Susana Murray
I assume your association has a management company. Call them up and tell them you want to see copies of the yearly audits/reviews.
Posted @ Friday, October 08, 2010 9:10 AM by Victor
Miscellaneous is a heinous category of expenditure. Misc.expenses should be very limited and very small. When an item is large it should be broken out of misc. and named. Certainly, one would expect that in the following year's budget an account should be created for those large items. In the meantime, ask to see the invoices in the misc. account. POLITELY!
Posted @ Friday, October 08, 2010 9:11 AM by michael e katz
Roberts Ruiles. If the board has opted to use Roberts Rules they cannot modify same without following the procedure to change rules as stgated in their state condo act. It normally requires a majority vote of the council of unit owners do approve.
Posted @ Friday, October 08, 2010 10:45 AM by Charles Adler
Your are correct. Proper use of Robert's Rule will insure that all members of the association (attendees) will be able to engage in deliberative discussion. Roberts Rules will enable the majority vote to determine issue and yet protect the minorities right to debate the issue. Further Roberts properly applied will result in shorter and more productive meetings of the board of Directyors. BUT FOR THIS TO HAPPEN REQUIRES THE BOARD AS WELL AS THE ASSOCIATION MEMBERS OBTAIN TRAINING IN USE OF THESE RULES.
Posted @ Friday, October 08, 2010 11:06 AM by Charles Adler
As only a mwmber of our association 
 
some of us suspected that some fraud was going on with our financial system. When we asked to see the books (several times) we were put on hold, until I finally had enough and threated to seek legal advice. We were then told that if we all hung in there they were going to change over to a management comoany ( of which we all voted yes to). And that stopped the asking for right now. We did change over to management and I informed (without the BOD knowing I did so) that I want a complete smack down of our account. 
 
The BOD all quit on us and now with management we only need 2 BOD. 
 
The turn over is now in place with a meeting to be held and new BOD voted in place of the old. I do not know if we will ever find out the real truth about our money, but rest assured that my check for my fees will no longer go into the hands of someone we thought was mis-managing our account. We were told that everything gets written down and a by-monthly report will be sent to each of us. Can we do anything about the past? Probably not but they will answer to God someday. I hope this helps you out! Get your members together (and this is not ill-legal) and have a meeting with each and everyone of them and discuss your options. I just threw you one of ours. Good luck.
Posted @ Friday, October 08, 2010 11:42 AM by S
Congrats!. But againI repeat.Get your state's condominium act and read those portions that pertain to the operation of your association. You shall find that there are only about 5 pages worth that directly affect your association daily activity. The larger majority relates to developers and their responsibilities etc. And yes you can certainly hold the resigned board members to account You might need the services of a forsenic accountant to analyze all your past records. If their is fraud or other chicanery involved he will find it. I know this costs money. Further you might have to engage a lawyer to bring your ex-board members to trial. There is also the possibility once you have the facts in hand that a lawyer;s letter to you ex board members advising of possibility of law suit that they will agreen to mediation and you might get some recompence that way.
Posted @ Friday, October 08, 2010 2:55 PM by Charles Adler
The problem with Forensic Accountants is that they are extremely expensive. You will have to see if the amount of money stolen is worth hiring a Forensic account for.  
 
How much money do you think was stolen? 
 
Miscellaneous is an abused area for hiding money. The board should have been keeping receipts. 
 
 
 
Posted @ Friday, October 08, 2010 3:59 PM by Victor
One other suggeswtion. Is the Management company you hired licensed and insured?? Hopw many years of experience in managing condo associations?
Posted @ Friday, October 08, 2010 4:15 PM by Charles Adler
I would be very careful to be throwing accusations of fraud around. You do not have the facts other than the miscellaneous account is too high. You will need an expensive specialist to prove fraud. You can get in hot water for libel. If this condo was self-managed and, the volunteer board failed to handle the bookeeping as an accountant would, the lack of expertize in this area is not a crime. The new management company should have at least ask for an Audit. They are fools by taking over a new client like your association and not protecting themselves in some way.
Posted @ Friday, October 08, 2010 5:13 PM by Susana Murray
It is the Boards place to ask for an audit. The management company is not exposed-they have liability insuirance.It is not a question of the competence of the old board but rather one of just where the money went. If in the course of this audit some very questionable expenditures turn up the Management company should advise the Board. But whether to take actuion is a question for the Board to make.
Posted @ Friday, October 08, 2010 6:11 PM by Charles Adler
This question couldn't have been posted at a better time. We have a board which actively ignores the owners yet thinks nothing of levying special assessments when the well runs dry. We have a large Capital Reserve, but somehow nothing to cover the small things. I sat down with the prop. mgr. who told me that the funds for unexpected expenses have never been separated from the Cap. Reserve Acct. even though our bylaws require it.  
 
 
 
I'm hoping to get other owners involved so we can put a stop to this nonsense.
Posted @ Friday, October 08, 2010 8:27 PM by Marian
That is the way to go Marian. You need lots of support from within your community to make your case loud and clear. Don't knon where you live but in most states what is called a Long Term Maintenance and Capital Improvement Reserve Funds are common.
Posted @ Friday, October 08, 2010 9:11 PM by Susana Murray
Most state condominium acts mandate a resereve fund. But reserve funds are not approp[riately used for maintenance, The reserve is tied to life expectancy opf major facilities in the condo that wear out with time, BNoilers, air conditioners, elevators etc. Not maintenance
Posted @ Friday, October 08, 2010 9:30 PM by Charles Adler
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